Metals rallied strongly yesterday with average gains of 2.2 percent, with nickel rising the most with a 4.9 percent gain boosted by hopes for a strong recovery in steel this year, followed by zinc which rose 2.4 percent (another steel related metal), while copper climbed 1.7 percent to $9,685. Relief that the Portuguese bond auction went well helped drive sentiment, especially as that lifted the euro and weakened the dollar in the process. However, what was good news for the base metals was not so good for precious as they once again failed to get a clean break back above their breakdown levels from last week, which were around the $1,385 area.

LME Overnight Performance

7:25 AM

+/-

+/- %

Lots

Cu

9668.5

-16.5

-0.2%

1799

Al

2495

-9

-0.4%

434

Ni

25823

-77

-0.3%

479

Zn

2452.5

-12.5

-0.5%

1354

Pb

2665.25

5.25

0.2%

224

Sn

26971

21

0.1%

73

Steel Med

594

0

0.0%

This morning the metals are starting European trading slightly down from yesterday’s closes, but after strong gains yesterday that is not surprising. On average the metals are down just 0.2 percent, with zinc down 0.5 percent at $2,452, aluminium down 0.4 percent at $2,495 and copper down 0.2 percent at $9,668. Volumes remain relatively light with 1,753 lost of copper traded, while total volume was around 4,363 lots. Gold is trading either side of $1,385, silver is holding below resistance, while the PGM’s look robust and are well placed to challenge recent highs – boosted by high hopes for continued recovery in the auto industry.

Economic Agenda

Time

Country

ACTUAL

Expected

Previous

11:50pm

JPY

Core Machinery Orders m/m

-3%

2.2%

-1.4%

6:00am

JPY

Prelim Machine Tool Orders y/y

63.5%

104.2%

6:30am

EUR

French CPI m/m

0.4%

0.1%

7:00am

EUR

German WPI m/m

0.6%

0.7%

9:30am

GBP

Manufacturing Production m/m

0.5%

0.6%

9:30am

GBP

Industrial Production m/m

0.5%

-0.2%

12:00pm

GBP

Asset Purchase Facility

200B

200B

Tentative

GBP

MPC Rate Statement

12:00pm

GBP

Official Bank Rate

0.5%

0.5%

12:45pm

EUR

Minimum Bid Rate

1.0%

1.0%

1:30pm

EUR

ECB Press Conference

1:30pm

USD

PPI m/m

0.8%

0.8%

1:30pm

USD

Trade Balance

-40.8B

-38.7B

1:30pm

USD

Unemployment Claims

405K

409K

1:30pm

USD

Core PPI m/m

0.2%

0.3%

Tentative

GBP

NIESR GDP Estimate

0.6%

3:30pm

USD

Natural Gas Storage

-146B

-135B

6:00pm

USD

Fed Chairman Bernanke Speaks

Tentative

USD

Treasury Currency Report

11:50pm

JPY

CGPI y/y

1.0%

0.9%

Equities are upbeat as Portugal’s debt auction bought the EU governments some more time– the Dow close up 0.7 percent yesterday and Asia has followed suit with the Nikkei up 0.7 percent, the Hang Seng is up 0.6 percent, China’s CSI 300 is unchanged, while the broader MSCI Asia Apex is up 0.4 percent.

The dollar is pulling back as the euro rallies with the dollar index back to the 80.0 level, last at 80.07. The euro is back at 1.3125, the aussie is at 0.9955, the pound is firmer at 1.5770 and the yen is stronger at 82.97. So dollar weakness should help underpin the bullish tone in the metals, although we would expect another nervous day as Italy and Spain hold large bond auctions and the Bank of England and ECB make interest rate decisions and announcements. There is also data out including US initial jobless claims and PPI, which if good could boost the dollar, see table on right for more details. Data already out shows higher than expected prices in France and Germany, while Japan’s machine tool orders climbed year on year, but fell month on month.

In Shanghai the April contracts were mixed which is surprising given the strong performance on the LME yesterday. Copper is up 0.2 percent at Rmb 71,690, zinc is up 0.5 percent at Rmb 19,420 while aluminium was 0.2 percent lower at Rmb 17,015. Spot Changjiang copper was up just 0.5 percent to Rmb 70,250-70,600, so remains in a large contango, while the LME/Shanghai arb remains negative with the premium of imported LME rising to $480/tonne as LME prices climbed while Shanghai did not follow.

Overall it does look as though the markets are gearing up to push higher, the dip at the start of the year looks more like another brief bout of consolidation and now the optimism over US growth, hopes that the EU debt situation will remain manageable and steady growth in China, look set to underpin the rallies in the metals. So unless something emerges to change this bullish underlying sentiment, the path of least resistance is likely to be the upside.